The Ukraine Construction: Sharp Fall

With kind permission from CEEC Research, I've posted a brief report regarding Ukrainian construction market

Prague, 3rd April 2009

Total decrease in construction industry in Ukraine

The Ukraine construction sector is experiencing significant and unexpected changes. For the year 2009, 73% of construction companies expect Ukraine construction industry to decrease. These facts are brought by the CEEC Research, whose general partner is KPMG Czech Republic. The research results also show that the first signs of the decline started to appear at the beginning of 2008, nevertheless the companies did not perceive it as the start of a potentially broader and longer crisis. Now the economic crisis fully influences the sector in question. All interviewed companies feel itself limited in their business – mostly by insufficient financial resources as well as a poor demand and a tough competition. Due to mentioned problems the usage of capacities of construction firms decreased by 50 %.

Are there any positive signs for the future? What are the basic issues which will mainly influence the existence of the construction industry in Ukraine? What are the major factors limiting companies growth? How are new business contracts acquired? What is the experience of companies with tenders? Which information sources do the Ukraine construction companies use? These and other important findings are provided by the Ukraine Construction Qualitative Study.

Highlights from the Ukraine Construction Qualitative study:

• 73 % of the respondents expect the sector to decrease in 2009 (from the 2008 basis, which was already a 16% decrease on the 2007 results). ). If we look on a more detailed level, the reality could be even worse (36% of respondents expect a decline of more than 20%).For the 2010-2011 period, the expectations are a bit more optimistic: in average respondents expect the sector to grow by 3 %.
• 100 % of the interviewed companies experienced limitations to their business. It means a significant increase from the previous years – only 64% in 2007 and 82% of companies in 2008.
• The most frequently mentioned limiting factor was insufficient financial resources (68 %, 22 % in 2007), followed by tough competition (increased from 15% in 2007 to 68% in 2009) and high material costs (which have doubled from 33% in 2007 to 66% in 2009).
• Companies have also decreased their employment of foreign workers on their projects from 16% to 7% 2008/2009.
• The Internet is used by 100 % of the interviewed construction companies, 89 % of companies use internet for information search, 50 % for company presentatin and about half of the companies use the Internet as an information source for potential new business deals
• Long-term contacts were rated as the main source of information (91 %), followed by meetings and presentations and the Intenet.
• The most often used sources of new deals/contracts for construction companies are preferred partnering agreements (frame contracts), long term contacts/networking (personal contacts) and tenders.
• Companies were asked: “Have you ever been asked for a bribe during the selection process/tender? 19% of respondents replied that they have never been asked for a bribe and the same share of companies replied “yes”. Nevertheless there was a great increase in “no comment” answers.
• Construction companies provided the tenders with one of the lowest transparency rating in the CEE region (only 3.2 points out of 10max, even lower than in Moscow with 3,9 points), which indicates that the transparency level is very limited. 25% of companies shows that public tenders are completely non transparent.
• 59 % of construction companies assess their risk management as intermediate; 5 % as advanced (decrease from 13 % in 2008), 33 % as basic and 3 % as low level.
• Only 29 % of the construction companies have never breached their risk management policy. The majority confirmed that they breach their risk policy to secure a new contract either rarely (34 %) or exceptionally (26 %); 11 % of firms do so often (increase from 2 % in 2008).
• The most often used methods for the selection of suppliers are preferred partnering agreements (which have further increased their share from 68% in 2008 to 83% in 2009), followed by long-term contacts/networking (60 %) and also recommendation (growing from 2007 until 2009 – 49 %).
• Key criteria during the supplier selection process are: price, mentioned by 74 % of the construction companies, experience of the supplier (68 %) and applied technologies (60 %).
• In the long-term, companies predict that the major factors impacting their business development will be mainly: financial situation of their company (increased from 63% in 2008 to 73% in 2009).
• The key investment areas for 2008-09 will be project management processes (increased from 38% in 2008 to 51% in 2009), the construction mechanization (top priority last year) has slightly decreased its share in the respondents’ samples.

The Ukraine Construction Qualitative Study is the first succefull report published by the CEEC Research in 2009. The interviews with construction companies operating in this region were performed in the Q1 2009 and provide findings based on 47 face-to-face structured interviews with the representatives of the local construction companies.

The analysis results provide interesting insight into the current construction situation which is visibly impacted by the financial crisis. The report is focused on the three key areas which are crucial for the qualitative analysis of the sector. These three areas are: companies’ expectations for the sector development, used sources of information about new business opportunities and last but not least applied methods for acquiring new business deals.

The full version of The Ukraine Construction Qualitative Study can be downloaded on the CEEC Research web site: www.CEEConstruction.Eu free of charge. At the same place you can find all details about the methodology, targets of the research and also qualitative reports of the other nine researched countries. The Central and Eastern European Construction (CEEC) Research project was conducted in partnership with KPMG in the Czech Republic.

About Mirax

Someone of you definitely know that Mirax, one of the leading developer in CIS, stopped its activity in Ukraine. It covers tallest complex in Kiev - Mirax Plaza on Podil district. They have decided to close head office (even if they're taking about lease end-term). The building will be frozen at 11th floor and they who bought the properties can move in or get the payment back. But I do not understant clear how they going to offer uncomplect building, which did not pass the state expertise.

And last details - today I did not watch the huge Mirax roof sign on Maidan. Total cost cutting. How long it will?

Couple Words On My New Project

You asking me about my new job and project.

I’ve been in Colliers not so long as many others guys there, but I happy that it was, really. But some forces lead me to New Park as a new project. Currently, I am a Managing Partner in New Park - the first Ukrainian company, which specializes solely on the development, design, construction and facility management of multi-storey automatic parking solutions, ground and underground. We have our own equipments, designed last year, as well as equipment from Italy, Korea and Turkey. You can visit New Park web-site, but it is still in Russian only

It was not so easy to deep in completely new and unpredictable market. But all of you who know the situation with parking lots in Kiev quite clear what I’m taking about. And do not forget about Euro02012. I believe that parking as property is very attractive in Ukraine, particularly in Kiev, Odessa, Lviv and Dnepropetrovsk. For instance, 1 parking lot in Kiev costs K70-130 USD in CBD (I meant in residential buildings). Why not to develop that sort of property? I have a very strong and reliable partners in that projects with own funds and side business. I’m responsible for all operational activity. Our target markets are:

• Office buldings
• Multi-storey residentials
• Single familiy residentials with lack of land

And we are seeking freehold land plots for our own development, for sure.

But one of the biggest idea(I guess so) to establish an investment fund for developing 5-10 parking property and sell them out with 12-13% yield.

That’s what I’m doing now. Hope a credit crunch won’t be too long.

Ukraine: Catching Up With The Neighbours

From Financial Times By Roman Olearchyk

Published: February 27 2008

Ukraine’s hot property market has produced some superior returns over the past eight years, providing investors with double-digit annual price growth rates.But it was not until last year that structured investment instruments appeared, such as real estate funds, offering international investors exposure to this fast-growing market.Most of the benefactors over the past decade were privileged domestic investors who snapped up flats and land in a frenzy, often at very low prices.Many who managed to close several acquisitions, typically with cash, turned into millionaires overnight as annual prices surged for seven years at double-digit rates.

Residential flats that a decade ago were selling for about $50,000, have reached astronomical levels, typically more than $2,500 per sq m. That is enough to make Kiev (pictured above) one of the world’s 20 most expensive cities in terms of property prices.

The sharp surge in purchase prices and rental rates is tapering off, but Kiev real estate experts do not expect a big downward correction in the immediate future. Demand consistently exceeds supply, particularly for commercial space, where the most growth is expected in coming years.The market holds ample opportunities for large foreign investors seeking strong returns by investing in a new wave of real estate funds and property developers, some of which have listed on the London Stock Exchange’s Alternative Investment Market (Aim).

“To keep up the pace of development and raise money for future development projects and land acquisition, large local developers started to more actively explore capital raising opportunities through IPOs and private placements,” says Tomas Fiala, managing director of Kiev-based Dragon Capital.

Dragon raised one of the largest sums from an IPO on Aim when it listed Dragon-Ukrainian Properties & Development, bringing in $208m, followed by secondary private placement for $100m.One developer, TMM, raised $105m. AISI Realty raised $33m, adding to a flurry of private placements by developers and funds.“These placements raised $664m in the aggregate, or 39 per cent of the total amount of capital attracted by Ukrainian companies through IPOs/private placements last year, says Mr Fiala.“To compare, there were only two real estate company share placements in 2006 for a total of $85m.”

Cast back in time by virtue of its membership of the USSR last century, and the collapse that followed the end of the USSR, experts say Ukraine’s real estate market is about seven years behind its peers in central Europe.While the foreign investment raised thus far is small, the expectation is its growth will imitate its neighbours’. New shopping centres, office space, warehouses and residential space continue to sprout up across the country.

“Foreign capital is a latecomer to the Ukrainian real estate market, having become active in the country only in 2006 due to complex legislation and intricate legal procedures. In addition, international property buyers were restrained by a lack of available stock for sale,” says Mr Fiala.But investments in both property development and property acquisition will continue to grow as local returns are much higher than on the alternative central and east European markets, according to Mr Fiala.

Petro Radchuk, vice president, at KDD Group, the developer that raised $130m last year in an IPO on Aim, says the listing “has allowed investors to get exposure to the fast-growing Ukrainian real estate market”.Like other developers and funds, KDD Group can offer large scale investors a chance to take part directly in some of its projects.

“Real estate consultants estimate that supply will equal demand not earlier than in 2010-2011. This explains why office rent rates grew 40 per cent in 2006 and 35 per cent in 2007. Retail centres increased rates by 15 per cent in 2007,” says Mr Radchuk.Last year saw acquisitions bring new landlords to top retail and office space in Kiev.

“The simple fact is that there are opportunities to invest here, whether through direct investment or via a vehicle like one of our groups’ non-listed funds or future listings like the ones we have seen on the Aim,” says Paul Niland, director of Primeros Property Fund.

One Line News - March 5

• CB Richard Ellis has opened office in Kiev
• GLD Invest starts to build A class logistic complex in Odessa with total area exceeds K60 sqm
• In 2007, Kviza Trade (Velika Kishenya' managing company) increased its profit in 4 times (to UAH 35.134 mln.) comparing with 2006
• VSE Energy is going to invest in 4 logistic complexes about USD 120 mln.
• Retail turnover in January 2008 has increased up to 27.1% comparing with the same period in 2007.
• KDD Group (Kyiv Donbass Development) has signed strategic partnership with Osnova-Solsif, one of the largest Ukrainian-French construction company.

The Ukraine Construction Qualitative Study 2007

This report is kindly presented by Jiri Vacek, who is the leader of construction research project, performed at the University of Economics in Prague and sponsored by KPMG Czech Republic.

To obtain this report you have to send me your company name, business sector you operate and email.

More info

Short News - new METRO Cash&Carry in Chernivtsi

Another one METRO was opened in Chernivtsi, Western Ukraine. This brand new shopping center has K11.8 sqm total area and K7.4 GLA.

METRO has bought 4.25 ha land plot for own property form the secondary market. Total funds invested are UAH 117.3 mln (USD 23.2 mln.) includindg land purchase, construction an equipment)

Yuschenko Against Building Up Territory Around Olimpiiskyi Sport Complex

From Ukrainian News

President Viktor Yuschenko speaks against building up the territory around the national sport complex Olimpiiskyi.

This follows from a statement of the president’s press service, a copy of which was made available to Ukrainian News.

Yuschenko believes that Olimpiiskyi is a national sport facility that will serve Ukraine many years after UEFA Euro-2012.

The president noted that the state should consider the sport complex with all reasonable attitudes.

«If we place stakes that this arena has national prospects, and we should give it a second life, I am confident that we should do everything possible to clear the area around it,» the press service cited Yuschenko as saying.

The president insists on taking down the object built on the territory adjacent to the sport complex.

«The country and city residents should see the territory adjacent to the national sport complex without any constructions,» Yuschenko says.

In the president’s opinion, this question should be settled via dialogue between the investor and authorities.

As Ukrainian News earlier reported, UEFA demands demolition of the trade and entertainment center in front of the national sports complex Olimpiiskyi for holding the European football championship finals in 2012.

In February 2006, FIFA warned it would ban holding of official football matches at Olimpiiskyi sports complex in Kyiv, given that construction works of the center near the stadium continue.

The construction company Yudzhyn considers that all reports of authorities, FIFA and UEFA on necessity to terminate construction of Troitskyi Trade and Entertaining Center ("Olimpic plaza") in front of Olimpiiskyi National Sport Complex are political.

In August, the Kyiv city council decided to study options for paying compensation Yudzhin developer company for the trade and entertainment center.

Petrovka Area Waits A New Shopping Centre

Within next 3 years nearby to Petrovka subway station may appear Petrovka shopping center with K187 sqm total area. The project drawings was approved at the last City planning council

Petrovka shopping centre will be built instead warehouses and book open-market, between Moscovskiy avenu and Verbov street. As described author of concept, Polish architect Anzhey Owczarek (he also designed Alta-Center), building will be 6 floors: 3the 3 floors of shopping area and 3 for underground parking. GLA is planned a K79 sqm. This is 2.5 bigger then Karavan shopping center has (K32 sqm respectively).

The first floor of the center located underground food supermarket, will be accessible directly from the subway. The two lower floors will serve parking for almost 2 000 cars.

There will be a new book market (K8 sqm), cinema multiplex for 15 rooms, restaurants, food courts, as well as bowling.

Construction works is scheduled to begin in spring 2008 and should be completed over two years.

One Line News - October 10

• Intermarket company (Lviv) is going to start operations for new K96 sqm shopping center at 2H 2008
• Kiev City Planning council did consider master plan for the last large territory (Osokorki) at the Left bank for 5 mln. sqm of residential construction
• Rizidor Hotel Group intends to open 4 brand new hotel until 2011 - one Radisson SAS and two Park Inn in Kiev and one hotel (brand is unknown yet) in Crimea
• Baltic Development is developing a new K 46 sqm logistic complex in Borispil, 13 km far from Kiev with USD 45 mln. total cost
• Kiev City Planning council has approved a additional area for Bolshevik shopping centre expanding more than K25 sqm
• XXI Century has announced its Net Asset Value - USD 1.498 bln, 1Q 2007 EBITDA - USD 27.27 mln.

One Line News - September 29

• The average price for hotel room in Ukraine - USD 300 - Yulia Stefanishina, Ernst &Young
• Cost of land lease in Kiev will be tripled up to UAH 382 for 1 sqm - Kievgorstroy ex-chairman
• Meinl European Land is gong to invest USD 1.2 bln in Ukraine until 2016
• Construction works volume has increased up to 14.5%n in this year
• Lviv authorities will sell 10 land plots for hotel development in 2008
• New retail chain "Miriada" starts from Dnepropetrovsk with first K11 sqm office-retail project at November 1

Odessa Counts The Tourism Is A Big Opportunitiy

Odessa has made calculations a revenue from tourism during the summer season and the concept of recreation development up to 2015.

Taking into this fact, Odessa authorities is going to develop tourism in the city, within all year, not only in the beach season.

It is necessary to straight on business tourism, says Victor Aksanyuk, Head of the Tourism and Recreation Department .

In such way, 2015 in Odessa will travel up to 70% more tourists, the city will increase revenues by 50% and the number of people who make business related with tourism will increase by 30%.

Dragon Ukrainian Properties & Development Buys 38 % Of Developer Henryland For USD 12 mln

LONDON (Thomson Financial)

Dragon Ukrainian Properties & Development PLC (DUPD) has bought a 38 % stake of Henryland Group Ltd, a British Virgin Islands retail developer, for USD 12 mln. Under this agreement, the company has entered into an option in favour of Dragon Capital Holding Ltd (DCH,) meaning that DCH may be become entitled to acquire up to 900,000 shares in Henryland, at USD 0.01 per share from DUPD. Following the completion of the transaction, DCH will own 11.3 % of Henryland and 50.7 % will be owned by third party investors.

Sourse - Sharewatch

If anybody have additional info regarding this deal, please post the comments.

Short News - Dragon Discovers Some Plans

Dragon-Ukrainian Properties & Development (DUPD), is established by Dragon Capital, is going to invest about USD 80 mln. in retail. As you know, recently DUPD has got funding for more than USD 200 mln. And now they intend to spend this money.

First phase includes the construction of shopping centers in Odessa (17K sqm.), Kremenchug (15K sqm), Lutsk (12K sqm) and other cities for total investment amount exceeds USD 75 mln.

Dnepropetrovsk City Master Plan Is Approved

Dnepropetrovsk City Council approved a master plan for the city until 2026.

According to to this document, there is forecast of population growth to 1.107 mln., with residential construction volume (single and multifamily) 6.8 mln. sqm.

The new master plan maintains continuity with the previous planning structure, roads direction, land plots for construction. Further development of the city will take place within its administrative borders at the using of existing vacant land, as well as through the reconstruction and sealing of existing buildings.

In fact, the new master plan assist to Dnepropetrovsk to develop its real estate property and solve traffic problems, particularly relevant to the Euro-2012.

Cabinet Approves Procedure For Architectural And Technical Supervision Of Construction Projects

From Ukrainian News

The Cabinet of Ministers has approved the procedure for architectural and technical supervision of construction projects.

Ukrainian News learned this from government resolution No.903 of July 11.

Specifically, the field supervision is exercised by an architect of the project or an authorized person, who can involve in the effort the subcontracting planning organizations that participated in some parts of the project.

The architect supervises the preparation of necessary documentation if it is developed by another entity of architectural activity.

He is also to appoint a field supervision group to visit the construction site on a regular basis and record the work results.

By the resolution, the technical supervision procedure is exercised by the customer or the builder during the entire construction period and all design solutions and government standard requirements must be observed.

The technical supervision includes the check of documents that verify the parameters of structures and production items, the record keeping of the amount of construction and assembly works, and the evaluation of the results of the works performed.

Supervisors have the right to demand from the subcontractor to fulfill the amount of work stated in the design and estimates, to interrupt the project if materials are found to be of poor quality, to conduct a laboratory research on the materials, and to remove project deviations.

They can also demand suspension of the project.

As Ukrainian News earlier reported, the parliament created a single vertical executive authority for regulating architecture and construction.

The Ministry of Construction, Architecture, Housing, and Utilities initiated state expert examination of investment programs and construction projects by a single state organization.

Hypo Real Estate Bank International Finances MLP Chaika Logistic Complex

Hypo Real Estate Bank International has opened a USD 82mln loan line to MLP company (International Logistic Partnership; Russia) for construction of MLP Chaika logistic complex near the Chaika in Kyivo-Sviatoshynskyi district of Kiev region.

According to the report, the purpose of funding a financing of the construction and further refinancing of MLP Chaika logistic complex.

«That is the fourth project financed by Hypo Real Estate Bank International. In 2006-2007, MLP received four credits from the bank for over USD 530 mln," the report reads with the reference to MLP partner Bruce Gardner.

According to MLP's CEO Vitaliy Kaschenko, it is the first time when the bank to provide project financing for construction in Ukraine.

Investments in the development will exceed USD 78 mln.

Cabinet Approves Procedure For Architectural And Technical Supervision Of Construction

From Ukrainian News

The Cabinet of Ministers has approved the procedure for architectural and technical supervision of construction projects. Ukrainian News learned this from government resolution No.903 of July 11.

Specifically, the field supervision is exercised by an architect of the project or an authorized person, who can involve in the effort the subcontracting planning organizations that participated in some parts of the project.

The architect supervises the preparation of necessary documentation if it is developed by another entity of architectural activity. He is also to appoint a field supervision group to visit the construction site on a regular basis and record the work results.

By the resolution, the technical supervision procedure is exercised by the customer or the builder during the entire construction period and all design solutions and government standard requirements must be observed.

The technical supervision includes the check of documents that verify the parameters of structures and production items, the record keeping of the amount of construction and assembly works, and the evaluation of the results of the works performed.

Supervisors have the right to demand from the subcontractor to fulfill the amount of work stated in the design and estimates, to interrupt the project if materials are found to be of poor quality, to conduct a laboratory research on the materials, and to remove project deviations. They can also demand suspension of the project.

As Ukrainian News earlier reported, the parliament created a single vertical executive authority for regulating architecture and construction.

The Ministry of Construction, Architecture, Housing, and Utilities initiated state expert examination of investment programs and construction projects by a single state organization.

One Line News, July 18

• Dnepropetrovsk authorities will offer new land plots for hotel development due Euro-2012
• During 2Q residential prices in Odessa has felt up to 10%
• XXI Century plans an additional stock issue on the Warsaw Stock Exchange f0r USD 200 mln.
  
• UTG And ICSC are creating International Real Estate study course in Ukraine
• The UBG Corporation has established the UBG Construction Management company.
• Lithuanian Hanner (ex co-owner of Olimpic Plaza) goes out from Kiev
• Metro Cash&Carry Ukraine is going invest EUR 100 mln. in 2 new shopping centers in Kiev city
  

New Retail Project In Odessa's Beach Part

British Absolute Capital Management Fund closed the first transaction in Ukraine by purchasing a land plot in Odessa for the shopping center Riviera Shopping City with total area exceeds 100K sqm and investments about EUR 75 mln.

Regarding the AIM information Absolute Capital Management Fund announced to investors that acquired in the eastern part of Odessa, near "Riviera" beach a plot of 18.5 Ha for the Riviera Shopping City.

According to the Fund Manager Robert Provine, this is a its first transaction n Ukraine. "We have been negotiating for the acquisition of several objects, and some of them already have signed contracts .We are ready within three years to invest in real estate in Ukraine EUR 350 mln." said Mr. Provine and promised over the next six months to announce about these projects . ".